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August 15, 2014

Hispanics Seek More Financial Knowledge

Distrust of financial services in Latin American countries means many immigrants have little experience with saving and investing, professor says

Many Hispanics lack financial role models because of banking failures in their countries of origin.

Growing up with little to no financial education, Hispanic investors today say they are hungry for more investment knowledge, according to a new Wells Fargo survey.

A large majority of Hispanic investors wish they knew more about investing in mutual funds, stocks and bonds (72% of surveyed Hispanic investors versus 64% of U.S. investors overall), according to the survey.

While nearly three-quarters of the surveyed Hispanics wished they had learned more about managing money when they were growing up (compared with 61% of U.S. investors overall), almost half (45% vs. 31% of U.S. investors overall) said “no one ever taught them about saving and investing,” according to Wells Fargo.

For many Hispanics, especially from immigrant families, investing and saving may not have been something they did in their home countries, said Jody Agius Vallejo, assistant professor of sociology at University of Southern California.

“Many Latin American countries experienced market failure … failures in the banking system or insurance market, so often times they’re distrustful of banks and understandably so,” Agius Vallejo said in an interview with ThinkAdvisor. “Market failures can affect how people view banks here.”

While second-generation and native-born Latinos may not feel this way because they were raised in the U.S., Agius Vallejo said “they don’t necessarily have the financial role models.”

Looking at Wells Fargo’s survey, 92% of the Hispanic investors polled (similar to 89% of U.S. investors overall) said their parents talked “a lot” or “sometimes” about the value and importance of hard work when they were growing up, but fewer than half of the Hispanic investors said their parents talked as much about financial issues.

Survey responses indicated Hispanic investors were more risk-averse, with almost half (47%) preferring to put money for the future into savings with no risk of losing it (compared to 35% of U.S. investors overall).

Agius Vallejo attributes this to several things, one of which is the added responsibilities Latinos have to provide financial support to their families. As the study also found, 31% of Hispanic investors are supporting adult children, parents, grandparents, extended family or others (compared with 26% of U.S. investors overall) and 6% are providing financial support for people who live outside the U.S. (compared with 1% of U.S. investors overall).

“They may not have as much money to allocate,” Agius Vallejo said. “So maybe they need something less risky.”

According to Wells Fargo, almost 60% of the surveyed Hispanics provide financial support to others in their families or communities (vs. 44% of U.S. investors overall) and half (54% compared to 39% of U.S. investors overall) reported having lent or given money to an adult family member in the last year.

Agius Vallejo added another reason for risk-averse behavior among Hispanics could be that they may not have a family inheritance, especially in immigrant families, and they may not have a lot of wealth to draw on.

Steve Novak, senior investment strategist for Wells Fargo Private Bank, noted the large Hispanic population in the U.S. as the motivation behind the survey.

“The overriding message here is that people are indeed quite hungry for knowledge, their appetite is strong,” Novak said in an interview with ThinkAdvisor. He added that, “our best clients are often the ones that know the most about the workings of the [financial] industry. We need to focus on education.”

Novak, who is based in Miami, has nearly 20 years of experience working in the Argentina region.

For financial professionals, Novak noted that this survey is the first step in the right direction.

“Doing these types of surveys is how financial professionals can help,” Novak said in an interview with ThinkAdvisor. “Before you address any situation you need to [know] the status quo. The survey alone is not going to change things, but it gives professionals some hard data on potential constituencies.”

Wells Fargo survey findings are based on an online survey conducted between June 12 and June 24 among 528 Hispanic investors nationwide, age 25-75, who are the primary or joint financial decision-maker in the household with household investable assets of at least $10,000. The survey also included a national comparison sample of 530 general population investors.

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